Despite ‘Choppy’ Markets, Biopharma Optimistic, Flush With Cash as Health Care World Headed to JPM

As investors in biopharma, medtech and affiliated industries descended on San Francisco for the 34th Annual J.P. Morgan Healthcare Conference (JPM), invited guests and throngs of hangers-on could be forgiven for glancing nervously over their shoulders at the global capital markets. In the wake of geopolitical and macroeconomic uncertainties – currency and stock roiling in China, oil-fueled power brokering in the Middle East, election year politicking in the U.S. and saber-rattling in North Korea – the first trading days of 2016 took investors on a wild ride, and they might need to hold onto their hats for the foreseeable future.

Despite inching up early Friday, Jan. 8, the Dow Jones Industrial Average closed in the red at 16,346.45, shedding more than 6 percent of its value during the first week of the New Year. The Nasdaq Composite – arguably the sector’s more important index – was off more than 7 percent in the week leading to JPM after losing more ground that Friday to close at 4,643.63. The Nasdaq Biotechnology Index, the subset of 190 of the sector’s biggest names, also remained in the red on the Friday before the conference for a one-week drop of nearly 11 percent, finishing at 3,160.21.

Still, the losses didn’t prevent a stunning number of biopharmas from turning to the markets with IPO filings during the first week of 2016 – eight offerings collectively seeking some $680 million – while 22 additional companies filed or priced follow-ons set to exceed $2.6 billion. (See BioWorld Today, Jan. 7, 2016, and Jan. 8, 2016.)

“Although biotech investors have headed for the sidelines for now, the industry’s fundamentals remain strong,” said Peter Winter, editor of BioWorld Insight and a seasoned observer of the industry’s financial and business trends.

“Investors will be listening closely to company presentations at JPM on how executives plan to deliver value going forward,” he observed. “After a massive inflow of cash in 2015, biopharma companies are well placed to pull the trigger on acquiring assets through M&A or ambitious partnering deals, in addition to the usual share buybacks. If investors like what they hear, expect them to return to the fold later this month.”

WHAT WILL BIOPHARMA DO WITH ALL THAT CASH?

The industry is poised to see more multibillion-dollar mergers, which could be announced as early as this quarter – even during JPM, as the long-simmering offer by Shire plc, of Dublin, to acquire Baxalta Inc., of Bannockburn, Ill., heated up again last week. (See BioWorld Today, Aug. 5, 2015.)

Winter also pointed to Gilead Sciences Inc., of Foster City, Calif., which is sitting on $10 billion raised in September 2015, only a fraction of which was used last month to purchase rights to the Janus kinase 1-selective inhibitor, filgotinib (GLPG0634), from Galapagos NV, of Mechelen, Belgium. (See BioWorld Today, Dec. 18, 2015.)

Analysts had questions about what biopharmas will do with all that cash – 70 pages worth from the J.P. Morgan Healthcare team. For example, the team wants Alkermes plc, of Dublin, to explain how the company will prioritize the use of its $800 million in cash in light of its ongoing phase III program for ALKS 5461 in major depressive disorder and upcoming pivotal programs for multiple sclerosis candidate ALKS 8700 and schizophrenia drug ALKS 3831. (See BioWorld Today, Feb. 25, 2015.)

For Celgene Corp., of Summit, N.J., the question is more about capital allocation and providing the most value from its cash, reported as $7.5 billion as of Sept. 30. For Dynavax Technologies Corp., of Berkeley, Calif., which posted upbeat phase III data last week on its hepatitis B vaccine, Heplisav-B, the J.P. Morgan team asked whether the cash runway is sufficient to finance the product launch. (See BioWorld Today, Jan. 8, 2016.)

For Vertex Pharmaceuticals Inc., of Boston, which is “sitting on a nice sum of cash,” inquiring minds want to know about capital allocation – whether the company plans “to keep this cushion or consider M&A/additional collaborations,” asked the J.P. Morgan analysts. In October, Vertex paid $105 million up front, including $75 million in cash and a $30 million equity investment, to Crispr Therapeutics AG, of Basel, Switzerland, on a collaboration to discover and develop treatments for genetic diseases, including cystic fibrosis and sickle cell disease, that could ultimately exceed $2.6 billion. (SeeBioWorld Today, Oct. 27, 2015.)

For Mannkind Corp., of Valencia, Calif., questions focus more on prospects for solvency. Last week, the company lost its commercial partnership with Paris-based Sanofi SA, for the inhaled insulin product, Afrezza, and saw shares plummet. The J.P. Morgan analysts want to know how long the company’s cash resources will last, how to think about its capital structure and future financing needs and whether it can raise additional capital in Israel. (See BioWorld Today, Jan. 6, 2016.)

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